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The Influence of Domestic Firms on Foreign Direct Investment Liberalization

40 Pages Posted: 15 Mar 2006  

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER)

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Date Written: March 2006

Abstract

This paper investigates the influence of incumbent firms on the decision to allow foreign direct investment into an industry. Based on data from India's economic reforms, the results suggest that firms in concentrated industries are more successful at preventing foreign entry, that state-owned firms are more successful at stopping foreign entry than similarly placed private firms, and that profitable state-owned firms are more successful at stopping foreign entry than unprofitable state-owned firms. These results continue to hold when we control for industry characteristics such as the presence of natural monopolies and the size of the workforce. When foreign entry is allowed in an industry, incumbent firms experience a significant decline in market share and profits. The pattern of foreign entry liberalization supports the private interest view of policy implementation.

Keywords: FDI, liberalization, political economy, state-owned firms

JEL Classification: G3

Suggested Citation

Chari, Anusha and Gupta, Nandini, The Influence of Domestic Firms on Foreign Direct Investment Liberalization (March 2006). Available at SSRN: https://ssrn.com/abstract=890818 or http://dx.doi.org/10.2139/ssrn.890818

Anusha Chari (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

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